Issue 5.3 | July 2015
In this Article: we build on last month’s article (how to unlearn flawed assumptions that hinder transformation) by showing how we can unlearn the flaws of Capitalism, and do business better. Next month we will focus on the not-for-profit sector.
by Jonathan Wilson
My mother vividly remembers where she was and what she was doing the day John F. Kennedy was shot dead on the streets of Dallas, Texas. You probably remember where you were and what you were doing when men flew passenger planes into New York’s Twin Towers. “There is an apocalyptic feel to the world now”, said my boss at the time, Michael Cassidy.
The financial crash of 2008 didn’t hold that kind of horror, but it still damaged the lives of millions. Each of those millions has their own memory marking that calamitous event: the day they lost their house, a humiliating escort off work premises, the plummeting line of their retirement fund. For me, the crash is represented by one particular conversation in a boardroom about halfway up the skyscraper of a major bank in Toronto. It was October, the sun shone coolly through the glass windows onto the table, but there was no light in the faces of an investment banking executive and her colleague. There was only desperation. The familiar world of clever profiteering was history.
Or was it? Yes, the 2008 crash revealed the brokenness of the Capitalist model. The business world, however, didn’t quite know what to do with this glaring piece of evidence for, I suspect, two reasons: a) the alternatives we know about are either proven failures or suspect (namely Communism and Socialism); b) the assumptions that drive the Capitalist enterprise are so invisible to us that we are unable to identify them, let alone to identify how those assumptions caused the crisis. There was a bit of chatter about fiscal sobriety (the “new normal”), then Shared Value, Conscious Capitalism and so on. Most of us returned to the old normal fairly easily.
We shouldn’t. The crash was real. Our assumptions were wrong. We thought we were flying a plane when in fact we were attempting to fly a car (see previous article).
Diagnosing the Capitalist Flaw
Transformation begins at the level of assumptions. In Western society we tend to look to technological innovation to save us, and where that’s not possible, we resort to rules (Sarbanes-Oxley, Dodd-Frank, etc.). But technology is nothing more than an extension of the human condition, and rules reflect only the failings of the human condition. Until we address the core assumptions that drive our social and cultural systems, we will not achieve the transformation we long for.
The assumptions that drive a system are found at the level of belief: what we (usually unconsciously) assume is true. Because we believe certain things are self-evidently true, we value a set of goals based on those self-evident truths. Those goals govern our behaviour. If you want to know what people believe, don’t ask them, watch their behaviours: you’ll get a far more accurate picture.
- The marketplace in a Capitalist system is marked by one dominant behaviour: extraction. Companies put enormous energy into extracting value from employees, from customers, from vendors, from resources of all kinds.
- This behaviour reveals a highly valued goal: earnings. We value making money. So far, no surprises. The purpose of a corporation is to make a profit, Milton Friedman claimed forcefully in his famous 1970 article in the New York Times Magazine.
- Beneath this goal of earnings lies the deeply-assumed truth bequeathed to us by Adam Smith, the father of Capitalism: that self-interest is the fundamental driver of wealth generation.
Neither Smith nor Friedman wanted or expected to see only extractive results. They both thought that the “Invisible Hand” of competition would correct the natural selfishness of the Capitalist model. It didn’t. The market crashed in 2008 because business was extracting value more than it was creating it. This is the fundamental flaw of the Capitalist model.
Steve Jobs said, “If you keep your eye on the profit, you’re going to skimp on the product. But if you focus on making really great products, then the profits will follow.” No product is great unless customers think so. The Capitalism that Steve Jobs had in mind was not one driven by self-interest, but by a vision of human flourishing. Let’s play this out using the model outlined above.
- If we begin with the assumption that the deepest truth about business is that it exists to make other peoples’ lives better,
- Then we will place highest value on the goal of creating and providing qualitatively excellent products and services,
- And our company will be marked by the behaviours that drive value creation: sensitivity to customers; deep self-understanding that enables a company to leverage its skills and insights with excellence and care; disciplined focus; operational discipline; and more.
Such a framework allows for a rethink of several other standard components of the Capitalist system:
- Customers replace the shareholder as the focus of the business. It is customers, after all, who will hold the business accountable to whether or not it is doing any good for them.
- Competitors are not there to be beaten. They hold your business accountable to deliver the value that only your business can, and which they can’t. To imitate the competitor is, in the end, to dilute or even lose your value. It is, in commercial terms, to lose your soul.
- Where there are Shareholders (seen today as holding the business accountable to profitability for its own sake) they hold the business accountable both to serving the customer well and with operational efficiency. Profits measure both.
- Profit is re-invested by the company into creating further and greater value for customers. Amazon is renowned for this but in many other ways still behaves extractively – towards vendors, employees and partners.
Traditionally, Capitalism is driven by self-interest and achieved by social interactions defined by extraction. The model described here, however, is shaped by an outward-looking passion for human flourishing; it is achieved by social interactions characterized by mutuality and interdependence. I call this Tribal Capitalism.
This may not be the best reinvention of Capitalism. But this is the kind of thinking, rethinking and experimenting we must keep doing if we are to learn the lessons offered us by the 2008 crash. The alternative is a future holding another scarred memory because we insisted on doing business using flawed assumptions.
Another leadership insight from www.leadbysoul.com.
Leadership by Soul™, Trademark and © Jonathan Wilson, All Rights Reserved.
- Profit Fixation is Bad (for Business)
- Stealing Business: When Value Creation Becomes Extraction
- Good Business: Abandoning the Miserly World of Profiteering